Why You Need Escrow

When purchasing a home, the term escrow will most certainly come up. If you’re not familiar with it, you soon will be as it’s essential in the home-buying process.

Escrow is a financial arrangement where a third party, perhaps someone from the closing company, an attorney or a title company agent, holds and regulates payment of the funds required for two parties involved in the home-buying process.

Escrow helps make transactions more secure by keeping the payment in a secure escrow account, which is only released when all of the terms of an agreement are met as overseen by the escrow company. Escrow protects all parties involved in the transaction by ensuring that no funds and property change hands until all conditions in the agreement have been met.

At first glance, escrow may seem like a headache but it most definitely is something of a beneficial safeguard for you. If, for instance, the buyer had a home inspection contingency and realized that there were issues with the foundation, which the seller then agreed to take care of. The buyer then realizes that the seller never took care of the foundation issues. If this transpires, the sellers won’t receive any money from the buyer until the foundation is repaired.

The buyer isn’t the only one that benefits from escrow – sellers profit as well. If the buyer decides at the last minute that they no longer want to pursue the purchase, they will have to pay a decent amount for their earnest money deposit. Typically this is one or two percent of the price of the home, which has been held in escrow. That money is automatically forfeited by the buyer and goes directly to the seller so the seller does get something out of the near transaction.

Escrow is basically a safety net for both the buyer and the seller in a real estate transaction. We all want assurance that our money – and property – won’t change hands until all of the i’s have been dotted and all of the t’s have been crossed.